Download “XXXXXXXXXXX” means that there is nothing to fill in this spot

1. Fill in the missing blanks (“XXXXXXXXXXX” means that there is nothing to fill in
this spot):
Quantity
0
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1
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2
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3
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4
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6
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7
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9
Total utility
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200
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575
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665
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735
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800
Marginal utility
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150
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125
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40
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2. Your willingness to pay for oranges is $5 per pound for the first pound, and decreases
by $1 for each additional pound (i.e. $4 for the second pound). If you can purchase as
many pounds of oranges you want at $1 per pound, what is your consumer surplus?
3. In a given country, if supply is represented by the equation P = 2Q, and demand is
represented by the equation P = 12 – Q, what are the equilibrium price and quantity?
Determine the new price and quantity equilibrium when a $1 tax is imposed on sellers.
4. Suppose that you plan on growing peas this summer in your back yard to supplement
your income. Assume that you have already paid $20 to get the garden ready, that peas
sell for $2 per pound, and that you can add fertilizer at a cost of $5 per pound. Based on
the yield table below, how much fertilizer should you add to maximize your summer
profit?
Pounds of fertilizer
0
1
2
3
4
5
6
Pounds of peas
20
30
35
38
39
39.5
39.75
5. From the information in the previous problem, what are your total summer profits?
6. If supply shifts to the left and demand shifts to the right, what can you conclude about
the new equilibrium price and quantity, relative to the old equilibrium?
7. When the price of tennis balls increases, what would you expect to happen to the
supply and demand of tennis rackets?
8. From the information in Problem 3, what would be the excess supply if a price floor is
set at $10? What happens if the price floor is set at $4? In each case, compare consumer
and producer surplus to equilibrium without price floors.
9. If price elasticity of demand for peanuts is 4 (in absolute value) and an increase in
percentage change in quantity demanded is 5 percent, how much does price change?
10. Assume that there is a linear demand curve with vertical intercept at price $10 and
horizontal intercept at quantity 20. What are the price elasticities of demand when price
is $8, $6, $4, and $2?
11. From the information in the previous question, at what price and quantity will total
expenditures be maximized?
12. If two individuals have demand curves represented by P = 10 – Q and P = 20 – 2Q,
what is the total demand? (Notes: Assume that quantity demanded is never negative.
Graphing the total demand may be easier than representing it algebraically.)
13. Assume that picture frames sell for $10 each and that hiring an additional worker
costs $200 per day. Given the production function below, how many workers should be
hired to maximize profits?
Workers per day
0
1
2
3
4
5
6
7
8
Output (picture
frames per day)
0
50
150
220
250
275
290
295
298
14. Assume the same information as in the previous problem. If the only other cost is a
$250 per day rent that has to be paid, how much are daily profits for this firm?
15. Again, use the same information as in Problem 13. Find the FC, VC, AFC, and AVC
for each possible number of employees hired. Determine the MC per picture frame for
each worker hired.
16. Assume that you can run your own business and earn $50,000 per year. If you could
instead be hired by a private company and earn $30 per hour to work at home 40 hours
per week, 50 weeks per year, which would you choose?
17. Given the information in the previous problem, assume instead that you must
commute if you are hired by the private company. Assume that each one-way commute
costs you $60. Which option would you choose?
18. If you won a contest that pays you $100,000 per year forever, how much is its
present value if the interest rate is always at 10 percent?
19. If each person in an economy has a comparative advantage in producing some good
or service, why is trade beneficial?
20. Assume that Brett can build 3 computers per day or 6 computer printers per day.
Assume also that Shannon can build 9 computers per day or 12 computer printers per
day. Who has absolute advantage in production of each item? Who has comparative
advantage in production of each item?
21. Joe can produce a total of 100 pounds per day of corn, peas, or a combination of the
two. If the world price of corn is $1/pound and the world price of peas is $2/pound, what
should Joe produce when costless trade is possible?
22. Using the information in the previous problem, assume that Joe produces to
maximize his total revenue. If he decides to consume 80 pounds of corn, how much peas
can he consume?
23. Assume the information in Problem 3 without a tax. Determine consumer surplus
and producer surplus if no trade is possible. Do the same for this country if the world
price is $2 and costless trade can occur. How much is imported or exported by this
country?
24. Assume the same as in the previous problem, except a $1 tariff is imposed on all
imports. What are consumer and producer surplus if trade is possible?